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NSE Earns Over A Third Of Revenue From Co-Location Service Amid Probe

National Stock Exchange Ltd. earned more than a third of its revenue from its co-location service even as the regulator probes alleged preferential access to high-frequency traders granted by India’s largest bourse.

The Securities and Exchange Board of India had asked the exchange to deposit revenue earned from the co-location service into a separate escrow account pending investigation. According to BloombergQuint’s calculations, the NSE deposited about Rs 821.8 crore in the year ended March. That’s 38.5 percent of its standalone revenue.

The regulator’s probe has delayed the exchange’s initial public offering and SEBI even returned the settlement plea saying it would first complete the probe. The investigation stems from a whistleblower’s allegations that the bourse allowed preferential access to certain high-frequency traders. The co-location service allows traders to place servers in the exchange building and directly connect with its systems.

Co-Location Revenue

The exchange said it has so far deposited nearly Rs 1,200 crore in a separate escrow account pending SEBI investigation—including income from investment in mutual funds. Of that, Rs 375.5 crore was deposited in the second half of 2016-17—about 43 percent of the six-month revenue. Which means, the exchange deposited about Rs 822 crore in year ended March or about 38.5 percent of its standalone revenue in 2017-18.

Offshore Revenue

The exchange’s revenue from offshore jurisdictions remained almost unchanged at Rs 119.2 crore in 2017-18. That largely would have come from its licence agreements with overseas bourses like the Singapore Exchange.

The NSE, along with two other domestic stock exchanges, have stopped sharing data with foreign peers to protect volumes from shifting offshore and promote the international trading hub in Gujarat, Prime Minister Narendra Modi’s home state. The NSE has also moved the court challenging new India derivatives that SGX plans to start from June 4 based on publicly available settlement price.